The rate of decline in UK car production slowed considerably last month but the industry remains in a fragile state, trade body the SMMT said this morning.

Car manufacturers made just under 108,000 cars in July, down 18% on the previous year, which the SMMT put down to the success of the government's scrappage scheme which has boosted demand.

The rate of decline is much slower than the first few months of the year when output dropped by more than half. Production has still fallen by more than a third compared with last summer.

Paul Everitt, chief executive of the SMMT, said: "The UK motor industry is starting to stabilise but remains fragile." He added that manufacturers needed greater support from the government, particularly to help consumers get loans to buy new cars. Carmakers are concerned that the recent increase in sales will be reversed once the car scrappage scheme comes to an end, probably in October, when funding runs out.

Van manufacturers are faring worse than carmakers, with production last month down by almost two thirds, as demand across Europe remained depressed. Commercial vehicles accounted for less than a tenth of the total vehicles made in the UK last month.

In the US, the government announced yesterday that its own scrappage scheme would end on Monday, only a month after it was launched. Huge demand exhausted the $3bn federal funding allocated to fund the scheme much quicker than expected.